exchange rate
The price of one country's currency expressed in terms of another's; the domestic price of a foreign currency, example is euros to US dollars
the market demand for U.S. dollars
originates in Foreign demand for American exports (including tourism), Foreign demand for American investments, and Speculation
a supply of US dollars
the demand for foreign currency represents what?
balance of payments
A summary record of a country's international economic transactions in a given period of time
Depreciation
A fall in the price of one currency relative to another
Appreciation
A rise in the price of one currency relative to another
appreciate
Whenever one currency depreciates, another currency must do what?
market forces
Relative income changes, speculation, Relative price changes, Changes in product availability, and Relative interest rate changes
foreign-exchange markets
Places where foreign currencies are bought and sold
exports and imports
A change in the price of a country's money automatically alters the price of what?
to fix exchange rates
each country may simply proclaim that its currency is worth so much in relation to that of other countries
gold standard
An agreement by countries to fix the price of their currencies in terms of gold; a mechanism for fixing exchange rates
market shortage
The amount by which the quantity demanded exceeds the quantity supplied at a given price; excess demand
balance-of-payments deficit
An excess demand for foreign currency at current exchange rates
balance-of-payments surplus
An excess demand for domestic currency at current exchange rates
foreign-exchange reserves
Holdings of foreign exchange by official government agencies, usually the central bank or treasury
gold reserves
Stocks of gold held by a government to purchase foreign exchange
deflationary (or restrictive) policies
help correct a balance-of-payments deficit by lowering domestic incomes and thus the demand for imports
flexible exchange rates (often called floating exchange rates)
A system in which exchange rates are permitted to vary with market supply-and-demand conditions; floating exchange rates
managed exchange rate
A system in which governments intervene in foreign-exchange markets to limit but not eliminate exchange-rate fluctuations; "dirty floats.